We seem to have a lot of those “… for Dummies” books on our bookshelf. I wonder if my “HTML 4 for Dummies” is recent enough to actually teach me anything about coding for this site… hmm. And in retrospect, I probably should have read the “Personal Finance for Dummies” there a little more closely a long time ago.
There is probably a book named “Budgeting for Dummies” out there, but I thought I would try my hand at a short synopsis of what I’ve learned by trial and error over the past few months. This post encompasses creating a budget.
1) Lists are your friend. Repeat – lists are your friend. This list included! Lists are your friend…..
2) Know how much income you earn in a month (roughly). You can do this by just looking at your paystubs if you are paid that way. My spouse is paid biweekly, but I am paid once a month and it varies by how much work I complete, so for me, I used an average from my last year’s earnings to determine my monthly income.
3) Make a list (lists… your friend) of all the things you spend money on in a typical month. Anything you can think of, from housing to utilities to groceries to the gym. We can clean it up later.
4) Now add any annual or semi-annual expenses (like car registration, insurance, maintenance contracts) to that list.
5) Now add any irregular expenses (those things that pop up sort of unexpectedly) – car maintenance is a big one here for many people.
6) Look at your list and combine things into categories. Have as many or as few categories as you like. You can be as streamlined as combining all fixed expenses (mortgage/rent, cable/internet, etc etc) into one single category, or as detail oriented as making a separate line item for every type of expense, from dining out (dinner) vs Starbucks (breakfast). I tried to come in at a happy medium personally.
7) Now, remember that income number? Start assigning it. As you assign a monthly cost to each line item, subtract it from your monthly income. If you run out of money before you run out of categories, see if you can eliminate some of your categories or trim the amount you put in them. I use PearBudget (free and no they don’t compensate me for mentioning them) software (limited to 30 categories in a combination of 10 fixed, 10 irregular, and 10 variable) to do this but it can be as simple as a pen and paper, or an excel spreadsheet.
8 ) Assign every dollar! All of your dollars need to be working for you. If you have so much income you can’t assign it all to expenditures (lucky you) drop the excess into your “savings” category (you have a savings category, right?) or alternatively into an investment category if they are separate. If you are in debt and are working to get out of it, you can assign excess to a “snowflake” category (this is what I do).
And… ta da! You have a budget! All of your money is working for you.
Now… as for a budget working… that is a topic for another post. But it isn’t as hard as you might think! It just takes some commitment and discipline and flexibility. Good luck creating your budget!